Pennsylvania Superior Court Reverses $21 Million Verdict Against Automobile Insurer Regarding Decision to Repair Rather Than Total Vehicle

In Berg v. Nationwide Mut. Ins. Co., the Pennsylvania Superior Court examined a lengthy dispute arising from a first-party automobile insurance claim. After an accident, the initial damage estimate determined that the insured vehicle should be declared a total loss. The insurer subsequently concluded that the vehicle was repairable and directed a collision facility to undertake repairs. The plaintiff policyholders alleged that the repairs were insufficient and that the vehicle was left with permanent frame damage rendering it unable to withstand a collision. The policyholders filed suit against the insurer and repair facility, asserting claims for breach of contract, insurance bad faith, fraud, conspiracy, and violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. After the lawsuit was filed, the insurer purchased the vehicle at the end of the plaintiffs’ lease.

The matter was bifurcated into two phases for trial. The first phase culminated in a jury trial regarding plaintiffs’ claims of fraud, conspiracy, and violation of the UTPCPL. The jury awarded the plaintiffs $1,925.00 in compensatory damages on the fraud and conspiracy claims, and $295.00 on the UTPCPL claim. The matter then proceeded to a bench trial with regard to the plaintiffs’ bad faith claim and demand for treble damages under the UTPCPL. The Court entered a directed verdict for the insurer with regard to these claims. On appeal, the Superior Court held that the trial court’s directed verdict was improper as it was based on a determination that the defendant insurer’s network repair program was not a part of the insurance policy, and was also improper because the plaintiffs presented some evidence in support of their bad faith claim. The matter came before a different trial court judge on remand, who found for the plaintiffs on their bad faith claim, and entered a judgment of $3 million in compensatory damages and $18 million in punitive damages.

The Superior Court began its review of this decision by noting that the evidentiary record did not support the trial court’s conclusion that the insurer “overrode” the facility’s initial determination that the vehicle was a total loss. The Court also found that the evidence reflected that the vehicle was repairable. The Court further determined that the evidence did not support the trial court’s finding that the insurer knew of the poor condition of the vehicle. Specifically, there was no evidence to indicate that the improper repairs could have been detected through the visual inspections of the vehicle performed by the insurer. The Court also rejected the trial court’s conclusion that the insurer should have been aware of the poor repairs. The Court noted that the insurer made no promises that it would inspect the vehicle upon completion of repairs, and had no duty to do so.

The Court also disagreed with the trial court’s determination that the insurer’s purchase of the vehicle was in bad faith. The trial court found that the purchase of the vehicle was intended to protect itself from liability (in the event of injury to a future owner of the vehicle) and prevent the plaintiffs from purchasing the vehicle and performing further inspections. However, the Court noted that the plaintiffs never advised the insurer that they intended to purchase the vehicle at the end of the lease, and the insurer did nothing to prevent the plaintiffs from exercising their option to purchase the vehicle. The Court also observed that the plaintiffs were not prevented from performing a “full analysis” of the vehicle, as they had possession of the vehicle for nearly two years after the repairs were completed, and also had access to the vehicle (pursuant to a court order) following the insurer’s purchase. The Court also disagreed with the trial court’s determination that the insurer’s eventual disposal of the vehicle reflected bad faith, noting that the disposal was authorized by the trial court and occurred after the litigants’ experts inspected the vehicle.

The Court also rejected the trial court’s conclusion that the insurer’s discovery misconduct during litigation supported a finding of bad faith. The Court noted that subject to limited exceptions, discovery misconduct does not constitute grounds for a bad faith claim under Pennsylvania law. The Court also observed that while the insurer improperly withheld some evidence, the evidence did not include a “smoking gun” establishing the bad faith claim.

In addition, the Court disputed the trial court’s assertion that the insurer acted in bad faith by spending excessive time and money in the defense of the action. The Court emphasized that the insurer had the right to defend itself, and declined to “arbitrarily impose a limit on the time and resources an insurer spends on defending a bad faith action.” The Court also held that the evidence did not support the trial court’s determination that the insurer failed to promptly resolve the claim, noting that two weeks after the plaintiffs filed suit, the insurer offered to have an independent expert inspect the vehicle. The insurer also advised the policyholders that once this inspection was complete, it would pay to have the vehicle repaired in a shop of the policyholders’ choice, or purchase the vehicle if it could not be repaired.

Finally, the Court criticized the trial court’s opinion for containing extensive discussions of the insurance industry in general, including discussions of insurers’ incentive to contain costs and insurance industry advertising. The Court found that these issues had no relevance to the central question of whether the insurer acted in bad faith in the case before it.

The Court therefore concluded that the defendant insurer did not commit bad faith. Accordingly, the Court vacated the judgment and remanded with instructions to enter judgment in favor of the insurer on the bad faith claim.